The United States has set ambitious targets to reach 80% renewable energy by 2030 and net-zero emissions by 2050 and needs to invest billions of dollars in scaling up clean energy sources to achieve these goals. One of the most promising sources is offshore wind, which is clean, scalable and innovative.
Despite attracting a lot of investment and interest in recent years—around $17 billion has been announced or invested in infrastructure, supply chain and early project capital since 2014—offshore wind, as a nascent industry in the United States, also faces many financial and regulatory challenges that make it hard for developers to invest in it.
While the United States’ renewable energy and net-zero emissions goals are undoubtedly ambitious, they are reachable if the private and public sectors collaborate to deploy the billions of dollars of investments needed to generate a massive scale up of clean energy.
Economic Instability, Supply Chain Disruptions and Regulatory Uncertainty Pose Challenges
When it rains, it pours, says the old adage, which sadly applies to offshore wind development in the United States. As of late, various factors are bringing down project economics:
- Global economic turmoil caused by the COVID-19 pandemic, the Russia-Ukraine conflict and the Israel-Hamas war have increased the costs and risks of offshore wind projects.
- Regulatory uncertainty and complexity have delayed the permitting and approval of offshore wind projects.
- Lack of coordination and cooperation among federal, state and local authorities have created conflicts and inconsistencies in offshore wind policies and regulations.
- Opposition and resistance from some stakeholders, such as fishermen, environmentalists and coastal communities, who have raised concerns about the impacts of offshore wind on their interests and values.
In summary, economic turmoil is causing project developers to face skyrocketing inflation and high interest rates—putting the deployment of required billions of dollars of capital at risk.
While these projects play a crucial role in meeting decarbonization goals, the financial burden faced by developers due to these challenges, coupled with standoffs with policymakers and regulators who are hesitant to engage in negotiations to increase the price of the power these projects were intended to deliver, have resulted in the cancellation of large-scale projects. Most recently, Danish energy company Ørsted, the world’s largest offshore wind developer, announced the cancellation of its 2.25-gigawatt Ocean Wind 1 and Ocean Wind 2 projects off New Jersey’s coast.
Overall, more than three gigawatts worth of projects in Massachusetts, Rhode Island and Connecticut have been canceled since the summer. This statistic is particularly concerning as the North and Mid-Atlantic regions account for over 50% of the U.S. project pipeline capacity.
The United States Cannot Allow This Downturn in Projects to Spiral
Less offshore wind means more reliance on fossil fuels and other “unclean” energy sources, posing severe economic risks due to their pricing volatility and the environment. Given the stagnant stage of the industry, the United States will need to overcome barriers of cost, technology, infrastructure and regulations if it is to re-catalyze innovation and deployment within the sector and achieve its net-zero targets.
While the Biden administration has attempted to provide support through policy, funding and tax incentives, more is needed to overcome the sector’s financial headwinds and make offshore wind investments an economically viable option for developers. As policies and regulations continue to evolve, there is a mutual opportunity for the private sector to lead, innovate and reduce long-term risks within the offshore wind industry beyond merely adhering to the status quo of compliance.
Corporations need a trusted partner to help them navigate this emerging market and act strategically as they embark toward positive climate and biodiversity action. To effectively decarbonize or operate in a nascent industry, they need to know which strategies and tools to apply, how new clean technologies and market conditions affect the process, what opportunities exist for further improvement or prospects for market development, or counsel on simply what works and why it works. Assisted with this expertise and experience, corporations can make offshore wind a viable and valuable option for their decarbonization and development strategies while creating share value for all.